Davis Polk partner Michael Hong was quoted in Buyouts discussing the increase in seed investors for GPs due to a challenging fundraising environment. 

Michael noted, “The tough fundraising environment has triggered a proliferation of GPs making ‘seed’ investments in new management companies.”

“There are more new entrants into the seed market, as well as established multi strategy firms buying stakes,” he said. “They are providing initial capital commitments, sometimes large, and maybe working capital, as well as networks, guidance and operational expertise in exchange for future revenue or profit share, or a proportion of carried interest, or a combination of the above.”

“Seed investors benefit from rights, for instance minority protections, that a typical LP wouldn’t have,” Michael noted. “For the manager, such structures are complex and often expensive to arrange.” 

“Looking forward,” he added, “I expect the seed investment space to become increasingly institutionalized and emerge as among the first ports of call for new managers seeking a foothold in a terrain that can be uneven for new entrants.”

“GPs are setting the table stakes,” Buyouts (March 30, 2026) (subscription required)

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